Correlation Between Large Cap and Us Small
Can any of the company-specific risk be diversified away by investing in both Large Cap and Us Small at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Large Cap and Us Small into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Large Cap International and Us Small Cap, you can compare the effects of market volatilities on Large Cap and Us Small and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Large Cap with a short position of Us Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Large Cap and Us Small.
Diversification Opportunities for Large Cap and Us Small
Very good diversification
The 3 months correlation between Large and DFSTX is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Large Cap International and Us Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Us Small Cap and Large Cap is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Large Cap International are associated (or correlated) with Us Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Us Small Cap has no effect on the direction of Large Cap i.e., Large Cap and Us Small go up and down completely randomly.
Pair Corralation between Large Cap and Us Small
Assuming the 90 days horizon Large Cap International is expected to under-perform the Us Small. But the mutual fund apears to be less risky and, when comparing its historical volatility, Large Cap International is 1.55 times less risky than Us Small. The mutual fund trades about -0.08 of its potential returns per unit of risk. The Us Small Cap is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 4,772 in Us Small Cap on August 28, 2024 and sell it today you would earn a total of 582.00 from holding Us Small Cap or generate 12.2% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Large Cap International vs. Us Small Cap
Performance |
| Timeline |
| Large Cap International |
| Us Small Cap |
Large Cap and Us Small Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Large Cap and Us Small
The main advantage of trading using opposite Large Cap and Us Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Large Cap position performs unexpectedly, Us Small can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Us Small will offset losses from the drop in Us Small's long position.| Large Cap vs. Dfa Inflation Protected | Large Cap vs. Dfa International Small | Large Cap vs. Dfa International | Large Cap vs. Dfa Municipal Real |
| Us Small vs. Intal High Relative | Us Small vs. Dfa International | Us Small vs. Dfa Inflation Protected | Us Small vs. Dfa International Small |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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